INSTANT VIEW-Indonesia to set up state firm to handle sales of key resource exports

Indonesia ‌is India’s biggest supplier of palm oil, and any changes could affect imports into India." GITA MAHYARANI, EXECUTIVE DIRECTOR OF THE INDONESIAN COAL MINING ASSOCIATION: "We believe this plan requires further explanation from the government, especially because the export mechanism through an appointed state-owned enterprise is a relatively new approach for the coal industry." "This plan also needs to be reviewed carefully.

Indonesia will set up a state firm to manage the sale of exports of natural ​resources including palm oil, coal and ferroalloy, President Prabowo Subianto told parliament on Wednesday. The ​president said the policy aims to optimise government revenue, strengthen ‌monitoring ​and combat under-invoicing.

COMMENTS: EDDY MARTONO, CHAIRMAN OF GAPKI (the Indonesian palm oil producers association):

"Not all of these exporters are plantation companies that also have processing industries. Many are also trading companies or traders that handle relatively small volumes to certain countries. With the ‌establishment of this body, what will happen to companies like these?" "Importers' orders for industrial purposes usually require specific compositions, so even within the same industry, the orders may not be the same. Can requirements like this be accommodated?"

"Exporters usually already have their own markets. We must ensure that we do not lose these markets due to poor management." B.V. MEHTA, EXECUTIVE ‌DIRECTOR OF THE SOLVENT EXTRACTORS' ASSOCIATION OF INDIA:

"We are waiting for the details of Indonesia’s export policy so we can assess its impact on Indian imports. Indonesia ‌is India’s biggest supplier of palm oil, and any changes could affect imports into India." GITA MAHYARANI, EXECUTIVE DIRECTOR OF THE INDONESIAN COAL MINING ASSOCIATION:

"We believe this plan requires further explanation from the government, especially because the export mechanism through an appointed state-owned enterprise is a relatively new approach for the coal industry." "This plan also needs to be reviewed carefully. Coal exports are not only a matter of administrative processes, but are ⁠also related to ​long-term contracts with buyers, coal quality specifications, payment ⁠schemes, shipping schedules, financing, and companies' obligations to the government as well as to business partners."

H KRISTIONO, CEO OF INDONESIA'S UCOAL RESOURCES: "Potential positives are: Enables GOI (government of Indonesia) to align exports with national interest, ⁠better bargaining power due to larger scale, revenue optimisation (if well managed), improved data and planning."

"Potential negatives are: Risk of lower prices for producers (less choice), reduced attractiveness for investors, innovation and efficiency could slow, ​high concentration risk due to a centralized entity." RIZKI SIREGAR, ECONOMIST, UNIVERSITY OF INDONESIA:

"In the current set up, we can see that the agency will ⁠be the monopsonist to Indonesia's producers and the monopolist for Indonesia's export. Naturally, its strategy will be to depress its buying price and increase its selling price." "The former is easier since the only outside option for producers ⁠will ​be to sell it domestically (and selling their produce via black market, which would be less likely or at least riskier). The latter is harder because the chosen commodities are homogenous products with very limited space to influence world price. Hence, the outcome of this setup is clear: a drop in our price – exactly what the President ⁠does not want to do."

"This new set up is also oblivious to challenges that Indonesia’s exporters are facing. The World Bank's enterprise survey shows that Indonesia’s exporters ⁠face higher incidence of bribery, not only compared ⁠to peers, but also compared to the average Indonesian firms. Indonesia’s exporters also already face higher cost of trade, both for importing and exporting." "In conclusion, the agency may create more distortions instead of being the solutions to the distortions, on top of already ‌severe distortions that exporters ‌face."